Some
common assumptions underlying the stock market runup after Trump’s election are
that his promised lower regulation, tax cuts and infrastructure spending will
be good for the country.
Stock
indexes have set records with the the Bulls running rampant on Wall Street
while the Bears stay in hibernation. The stock market had already been on a
steady climb since the 2008 near economic collapse and the housing crash,
thanks to federal stimulus programs and timely intervention to prop up at risk
banks and new standards for lending.
But
what about inflation and higher interest rates? The latter are already part of
the mix, Trump notwithstanding, the Federal Reserve just hiked rates another ¼
percent for only the second time in the past decade, which likely had nothing
to do with Trump but more with an economy moving to full employment and other
factors.
The
truth is, given Trump’s often conflicting statements over the many months of
the campaign no one can with any certainty know what’s to come. A tweet here
and a tweet there and who knows what the new tweeter-in-chief is thinking other
than reacting to the latest news item.
There
are a few clues and mixed signals as to what’s in the future for real estate
with the new administration.
In
the anecdotal category for the luxury market, there is considerable buzz about
wealthy potential Russian buyers cruising Manhattan for plush accommodations.
This would fit the premise that Trump’s apparent affinity for Putin and pick of
oil executive Rex Tillerson, with connections to the former KGB agent, for
Secretary of State could mean cozier relations with Russia.
Sotheby’s
International Realty brokers say there has been substantially increased traffic
by Russian lookers since the election. An attorney who specializes in foreign
buyers estimates interest is up 35%.
NAHB
statistics show current sales conditions up 7 points, expected forward
six-month sales higher by 9 points and buyer traffic by 6 points. At 53 points
on the index traffic moved into the positive, or greater than 50 points, level
for the first time since October of 2005, the NAHB reported.
According
to the NAHB chairman builders are positive on the expectations that a Trump
administration will favor mitigating, “...burdensome regulations that are
harming small businesses and housing affordability.”
The
NAHB claims that the regulatory costs of homebuilding have increased by 29% in
the past five years.
Counterbalancing
the jump in builder sentiment, on the heels of the NAHB report came a US Census
monthly statistic indicating a 19% drop in new construction. Some analysts say
builders are optimistic for the future but are being constrained by rising land
and construction costs, while concurrently reaping higher prices while demand is
strong and supply scarce.
At
some point if the trend continues, new construction should come into line with
builder sentiment, the reasoning goes.
As
for the impact of interest rates on buyer behavior, “old timers” point out that
even with modest Fed hikes and a jump in mortgage rates we’re still in a
historic low range of home financing costs. In October of 1981 the Freddie Mac rate hit 18.45% and did not drop below 10% until late in 1989.
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| Source: MortgageDailyNews.com |
In
the second week of December, the 30-year fixed rate mortgage had moved toan average of 4.14%, a 23 basis points
increase from the previous week’s 3.91%.
On
the one hand there are reports of “panic” among some buyers to get ahead of
potential further jumps. But big picture analysts say income levels with
rising, even moderate, inflation could offset increased homebuyer financing
costs.
Moreover,
some real estate economists are betting that rates will only increase
moderately in 2017, including Seattle-based Redfin’s specialists who expect
they will top out at 4.3% or less, according to reports.
Initial
examples given by early media reports of the rate rise concentrated on the
extra cash outlays for a home over the 30-year loan term.
For
example the difference in total costs--excluding mortgage insurance closing
costs and other expenses—for a $400,000 home loan financed for 30-years at
4.14% rather than 3.91% would be $19,119.30 if carried for the full term.
It
may sound like a big figure, but the monthly payment only increases by $53.11.
And few buyers will stay in the same home a full 30 years.
http://www.mortgagenewsdaily.com/mortgage_rates/charts.asp
